Building contract – Collateral warranty – Section 104 of the Housing Grants, Construction and Regeneration Act 1996 – Defendant contractor giving warranties, acknowledgements and undertakings to claimant employer in relation to building contract – Claimant issuing pre-action protocol letter of claim regarding defects in work – Parties entering into settlement agreement – Claimant issuing new claim in relation to separate complaint – Claimant seeking declaration regarding status of collateral warranty – Whether collateral warranty amounting to construction contract for carrying out of construction operations – Declaration granted.
The Claimant company provided facilities management services for the Cardiff International Pool, a swimming and leisure facility. The city council owned that facility but let it to Orion Ltd under a lease dated 25 April 2006 for a 25-year term. Orion sub-let the facility to the claimant for a term of about 10 years. The claimant then operated that swimming facility for Orion and the council, pursuant to an agreement dated 11 January 2008.
By a building contract dated 7 April 2006, Orion engaged the defendant company under a standard JCT design-and-build contract to complete the design for the facility and carry out and complete the construction. On 6 December 2007, before the works had been completed, a deed was executed between the claimant and the defendant whereby the latter gave certain warranties, acknowledgements and undertakings to the claimant (the collateral warranty).
The works reached practical completion in 2008 and the claimant occupied the facility, which was opened to the public. A number of problems arose over the following 30 months and the claimant complained about alleged construction and commissioning defects. On 19 March 2012, the claimant, Orion and the defendant reached a settlement agreement.
The claimant then brought proceedings against the defendant concerning the defective design and/or installation of the air handling units (AHU) during the construction of a swimming pool, which it claimed to be new and separate issues to those which were the subject of the concluded compromise. The claimant contended that the defendant had been responsible for the design and installation of the AHUs under the contract and that the said design and installation was defective. It contended that, as the defendant had failed to carry out and complete the works in accordance with the contract and/or failed to exercise reasonable skill and care in the design and/or completion of the works, it was in breach of the collateral warranty.
The claimant applied to the court for a declaration that collateral warranty was a construction contract for the purposes of part II of the Housing Grants Construction and Regeneration Act 1996 within the meaning of section 104(1)(a), as an agreement for the carrying out of construction operations.
Held: The declaration was granted.
There could be no doubt that the reference to a “contract” had to mean a contract under English law, however it was formed (simple, in writing, oral, under seal or otherwise) and that it was by reference to that contract that one had to determine whether or not it was a construction contract under the 1996 Act. It had to be primarily by reference to the contract entered into between the requisite parties that one determined whether the contract was one for the carrying out of construction operations, the arranging of the carrying out of construction operations by others or the provision of labour or the labour of others for the carrying out of construction operations. One had to then apply ordinary contractual interpretation principles to determine that aspect of the contract.
In that context, a construction contract did not have to be wholly or even partly prospective. One had to be careful about adopting a peculiarly syntactical analysis of what words meant in the 1996 Act when it was clear that Parliament had intended a wide definition. An agreement “for…the carrying out of construction operations” was a broad expression and one ought to be able, almost invariably at least, to determine from the contract in question whether it fitted within those words, without what could be a straight-jacketed judicial interpretation. Usually, and possibly invariably, where one party to a contract agreed to carry out and complete construction operations, it would be an agreement for the carrying out of construction operations. Considering the actual wording used by the parties, there was no doubt that the particular collateral warranty in question had been and was to be treated as a construction contract “for…the carrying out of construction operations”. It followed that the claimant was entitled to a declaration in appropriate terms to the effect that the contractor/beneficiary warranty deed dated 6 December 2007 was a construction contract for the purposes of part II of the 1996 Act: Hanlon v The Law Society [1981] AC 124 and R (on the application of A) v Director of Establishments of the Security Service [2009] UKSC 12 considered.
It followed that the claimant was entitled to a declaration that the contractor/beneficiary warranty dated 6 December 2007 was a construction contract for the purposes of part II of the 1996 Act. There would also be declarations as to the effect of the settlement agreement as agreed.
Justin Mort (instructed by Harrison Drury & Co Ltd) appeared for the claimant; Steven Walker QC (instructed by Pinsent Masons LLP) appeared for the defendant
Eileen O’Grady, barrister
